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During Q2FY24, HMCL delivered better than expected performance on the revenue front on account of better realization. However, disappointed on the margin front. It’s revenue for the quarter increased by 4.1% YoY on a high base to Rs.94.45bn (vs. est. Rs.88.41bn). Despite, the low single digit growth in top line, EBITDA jumped by 27.9% YoY to Rs.13.28bn. vs est. of Rs.12.55bn. Margin expanded by 265bps YoY/30bps QoQ to 14.06% (adjusting to EV impact it was ~15% vs 14.5% in Q1FY24). Management expects ~90- 100bps impact would continue due to EV ramp up till stabilization in the volume. EBIDTA/vehicle also jumped by 29% to Rs.9,377 due to better mix. RPAT for the quarter jumped 47% to Rs. 10.54bn vs (est. Rs.10bn) due to higher other income.

* The festive season has started well, the company has grown 15% in the initial 17 days of the festive season and is looking to achieve overall double digit growth. Last festive season volume was close to 1.2mn, expect industry to grow in double digit. Management expects the demand momentum to continue from December onwards as well due to recovery in the rural market.

* Portfolio premiumization and store revamp will help to grow better than industry: The company is upgrading the showrooms, with expectations to upgrade at least 500 stores (out of a total of 6000) in the next 6 months. The company is also revamping the service centers and will continue to launch new models. Further, the company is working on a new model in the 125cc premium segment and the scooter expects some launches in the Q3 and Q4. With the introduction of new variants such as the Xtec editions of the Splendor Plus, Passion, Super Splendor motorcycles, and the Xtreme 160R Stealth 2.0 edition, the company has already begun to add premium features to its existing product line. Regarding Harley Davidson and Karizma, supply chain capacity is being built, in Phase-I aiming to produce 10,000 units per month and gradually ramp up. We believe that the company will benefit from the premiumisation trend that is happening in the industry. To recover lost market share, the company continues to focus on the entry-level and 125+CC segments.

* Outlook and Valuations: We expect HMCL to improve market share going forward due to its long term strategic plan like showroom revamp and upgradation of portfolio. Further we are positive on HMCL due to a lower threat to EV transition (scooter ~8% of overall volume); scaling up the EV portfolio; entry into middleweight MC with HD-X440 and Healthy dividend yield of 3.3%. We recommend ADD rating on the stock with TP of Rs.3477 (16x of Sep-FY25E EPS).

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